Surprise CFTC Announcement

I was shocked by Friday’s announcement by the CFTC of an order and simultaneous settlement of manipulation charges in COMEX gold and silver futures. I first saw it in a Zerohedge article and subsequent articles on Bloomberg and in the Wall Street Journal, but all those accounts were somewhat off target compared to the CFTC announcement itself. This was one of those rare cases where the source announcement was much clearer than the articles describing it. I would ask you to take the time to read and reread the actual announcement from the CFTC, including both the press release itself and the complete order.

In essence, for the first time in history, the Commodity Futures Trading Commission has brought charges against someone for manipulating the gold and silver markets exactly in the manner I have described for decades. This is so astounding on its face, that I hardly know where to begin. In addition, I am writing this less than 24 hours after reading the announcement, so I reserve the right to alter my opinion as time evolves. But there is much to say at this point.

While it is true that the agency brought these charges against a former junior trader of an unnamed foreign bank (said to be Deutsche Bank), the price manipulation occurred during the time of the CFTC’s infamous five-year formal silver investigation. You’ll remember that the original investigation by its Enforcement Division previously concluded that there were no manipulation charges worthy of pursuing. Clearly, something changed the CFTC’s mind. Also, please note that all the alleged price manipulation took place on the cesspool also known as the COMEX and not on any of the foreign exchanges often bandied about.

Further, as the press release makes abundantly clear, this is no one-off by the agency. I don’t think I am exaggerating in the slightest to say that the press release reads more like an open solicitation for others to step forward to provide information pertaining to COMEX gold and silver futures manipulation. Again, please read the documents. I don’t know what I am more shocked by – the announcement of manipulation in COMEX gold and silver futures or the very obvious intent by the Commission to pursue this further.

As for what persuaded the Commission to, effectively, change its mind about a precious metals manipulation centered on the COMEX, I don’t know where to start, since I have been petitioning the CFTC for decades about this very matter. But this isn’t about me and instead involves the long term occurrence of the most serious market crime possible – price manipulation. So let me put this on fast-forward in trying to explain why the CFTC chose now to wake up to a manipulation it should have seen more than 30 years ago, when I first began to petition the agency about a COMEX silver manipulation. I think it has to do with one man (not me).

A little less than two months ago, I took the occasion of two new appointments at the CFTC to petition the agency again to intervene in the ongoing silver manipulation and I also asked others to write in as well. I did so on these pages and in a public article, titled “Another Opportunity”. Once again, I thank the many hundreds of readers that took the time to write to the agency.

Unless I’m badly misreading what is occurring, it looks to me as if our collective efforts may have finally paid off. If you read the CFTC’s press release, you’ll undoubtedly note that the official quoted is James McDonald, the new Director of the Enforcement Division and one of the two new officials we wrote to. In addition, I also send McDonald all my articles, as I have always done with past Enforcement Directors.

In a subsequent article (on April 19), I wrote how I had received private comments attesting to McDonald’s high level of integrity and hoped out loud that he might be the one to break away from the Commission’s prior recalcitrance for seeing the silver manipulation as it really was. Again, unless I’m mistaken badly, my hopes may have been fulfilled.

When I decided to write to the CFTC, yet again, on the occasion of the new appointments, I had three potential outcomes in mind. The first was that nothing much would change, meaning the new appointments would quietly fall into line with the previous position that no manipulation existed or could possibly exist in COMEX silver. In that case, we would all be out the time it took to write to the agency, not a particularly serious downside.

I also thought it possible that if a new high-level CFTC appointee became convinced of the merits of my allegations and saw that he was up against an agency that should, but wouldn’t address this most serious matter, that someone with a high level of integrity might quickly resign his position. It wasn’t my primary goal to back an honest man into a corner, but hey, I wasn’t causing the manipulation, nor did I have anything to do with anyone being appointed.

Finally, I thought that if an honest man did become convinced that my allegations had merit and decided not to resign, but instead live up to the deep responsibilities entrusted to him, then that man would endeavor to do the right thing. And truth be told, I thought that should this be the outcome, then there would only be a fairly short period of time before that would become apparent, something like a month or two. After all, how long would an honest man wait before acting against the most serious market crime possible that was in conflict with the agency’s prime mission? I would submit that James McDonald is that honest man and yesterday’s press release certifies that.

Not for a minute do I think that yesterday’s case against the junior trader was initiated after McDonald’s appointment, as such cases necessarily involve long lead times. What I am suggesting is something else – yesterday’s announcement would have never taken place were it not for McDonald. That’s because the announcement was shocking and not in keeping with prior agency findings; it was either bring the case or McDonald was out of there. Further, the announcement was more of an open invitation for others to step forward to drive an investigation into silver manipulation than it was anything else.

Some may ask why the CFTC is going after junior level traders when the crime of manipulation is as institutional as it gets. This looks quite measured and deliberate. Let’s face it – the CFTC has dropped the ball on going after the silver manipulation for decades and because of that has dug itself into a deep hole. It would be nice if the agency just came out and said that it blew it by not reacting years earlier, but there was never any realistic chance of that. This is the best it can do at this point and fits in perfectly.

If you read the announcement, I hope you are struck by the description of what the junior trader is alleged to have done wrong and the similarity to what I allege on these pages twice a week. The order didn’t reference managed money technical funds being snookered by the commercials, yet that is exactly what the junior trader is accused of. The announcement even uses the word “induced” to describe the intent of the spoofing and fake price signals, same as the words I use regularly.

McDonald is no dummy; if he knows some traders are inducing others to buy and sell so that those manipulative traders can position themselves against the duped participants (as is clearly spelled out in the complaint), then he also knows that is proven in COT data. There is little doubt in my mind that the announcement is a “shot across the bow” for the institutional manipulators, like JPMorgan and Bank of Nova Scotia. He is taking a bottoms up approach – getting smaller traders to turn on larger fish up the food chain, when he could just as easily use the COT data to prove the manipulation. And he is doing so for very good reason, namely, because the CFTC can’t come out and admit they blew it for three decades. They have to find another way – pretending to go after little fish is a way of telling the big crooks that the jig is up.

Nearly eight years ago, I wrote an article entitled “The Bomb Squad” in which I described the plight of then-CFTC Chairman Gary Gensler in trying to defuse the price bomb created by the silver price manipulation. I warned that he must be very careful, as trying to dismantle the manipulation could blow up in his and the agency’s face. Gensler failed for a number of other reasons, but the sad part is that the market terrorists at JPMorgan, while coming to protect itself with its massive physical silver accumulation, has only added a lot more explosives to a silver bomb that still must be detonated someday.

I’m convinced that McDonald and the agency now realize things have gone too far and it’s time to try to arrange the best outcome possible. Having missed it all these years, the options still open to the agency are now quite limited. The best alternative for the CFTC may be to signal to the big manipulators, like JPMorgan, that the game is up and let the crooked commercials on the COMEX resolve matters for themselves so that the agency can pretend the manipulation is unwinding of its own accord. This way the CFTC can maintain the cloak of deniability and finally end a completely broken price discovery process that has now come to infect other important markets. The time for instituting legitimate position limits which would have ended the manipulation many years ago has long past.

Besides, how does the Commission get around the secret and illegal agreement made between JPMorgan and the US Government when the bank rescued Bear Stearns in 2008? The simple answer is by an end run. Whatever that agreement entailed, it was never intended to last in perpetuity. Nine years of looking the other way is long enough, at least for an honest man. Perhaps the only way to demonstrate to the big COMEX commercial crooks that enough is enough is to do what the CFTC just announced – a deepening investigation into the COMEX silver manipulation as fair warning to end the scam.

As I said, maybe I’m all wet and James McDonald is not the conscientious and honest regulator that I’ve made him out to be. In that case, the silver manipulation may not be coming to a head, as I’ve suggested. Time will tell. Interestingly, the key factor is still will the stone-cold crooks at JPMorgan sell aggressively short into the next silver rally? Still, I can’t see how yesterday’s announcement isn’t a blockbuster event.

After publishing unique precious metals commentary on the Internet since 1996, I have decided to offer a subscription service. The main reason for the change is that I felt somewhat restricted by my weekly format.

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